Negative Outlook for Global Shipping Industry

by CFO Innovation Asia Staff, 31 May 2012

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A sustained oversupply of vessels combined with high bunker oil prices will pressure margins in most shipping segments in 2012, says Moody's Investors Service in an Industry Outlook report published today. As a result, Moody's outlook for the sector over the next 12-18 months remains negative.

"We anticipate that the aggregate EBITDA of the global shipping industry will decline by around 5%-10% in 2012," says Marco Vetulli, a Moody's Vice President -- Senior Credit Officer and author of the report. "Uncertainty about the depth and duration of the recession in the euro area and resurfacing geopolitical tensions in the Persian Gulf pose further downside risks to the industry."

In Moody's view, the dry-bulk and crude oil tanker segments are likely to have the largest supply--demand gap in 2012, complicating these sectors' ability to meaningfully improve their earnings.

The outlook for the product tanker segment is more favourable since demand growth is likely to outpace supply during 2012, leading freight rates to rise by the end of this year.

Box freight rates for the container segment have rebounded since March this year.

However, Moody's does not expect strong improvement in earnings for the full year in this segment.

This reflects sustained high bunker oil costs and pressure on container rates stemming from recent increases in deployed tonnage of box ships.

Moody's notes that Japanese conglomerates are likely to be affected to a lesser extent by negative market trends affecting other global shipping companies owing to their scale, diversification (including their liquefied natural gas, or LNG, fleets) and strong relationships with customers.

Moody's could consider changing the outlook for the global shipping industry to stable if it were to see signs that the supply-demand gap is likely to narrow over the coming 12-18 months, such that supply exceeds demand by no more than 2% or demand exceeds supply by up to 2%.

For the outlook to stabilise, the industry's aggregate EBITDA growth would also need to be within a range of -5 to +10%. However, Moody's considers this unlikely at present, given the sustained oversupply of vessels.

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